Packaging producer Smurfit Kappa expects its earnings to climb by about 20 per cent this year as it experience higher demand and raises prices to counter the impact of higher raw material costs.
The Dublin-based company recorded operating profits of €206 million in the first six months of the year, a 22 per cent increase on the same period last year.
Revenue at the group increased by 7 per cent to €3.226 billion and it said demand on its markets would deliver further pricing recovery in the second half of the year. The company reported a first half net loss of €38 million, down from a €15 million profit a year earlier, due to one-time costs.
Smurfit Kappa said it expects a cost saving programme, initiated in 2008, to have generated €300 million of savings by the end of the year.
"The group is pleased to deliver an improved EBITDA margin of 13 per cent in quarter two," Smurfit Kappa chief executive Gary McCann said.
"Materially higher input costs were in part offset by the acceleration of corrugated price recovery in Europe and Latin America, together with the healthy pick-up in demand across all our key markets."
Smurfit Kappa said it now expects to deliver EBITDA growth in the region of 20 per cent for the full year.
It said strong cash flow generation in the second half of the year will lead to a meaningful reduction in its net debt to EBITDA ratio.
Smurfit Kappa rose as much as 25 cent, or 3.2 per cent, to €8.09 in Dublin this morning but was trading at €7.85, up less than half of one per cent, at 10.45am.
Davy Stockbrokers said it was a very positive set of results for Smurfit Kappa which illustrated a continuing trend of positive pricing and volume momentum across the business.
"We will likely upgrade our full-year EBITDA forecast to circa €900m with the 2011 forecast likely to increase to over €1,200m, a 5 per cent upgrade in both years," Davy said in a briefing note.
"This will result in an increase in cash generation and an acceleration in the rate of debt reduction. This in turn will mean a more significant accretion to the equity value of the business. We remain very positive on the outlook for the share price and reiterate our 'outperform' rating and 1200c price target."
